It's well known that the Social Security system, if left unchanged, will not be able to fully fund benefits for retirees in the future. What, then, might it look like in 30 years? Here are four possible scenarios.
Brian Feroldi: My guess is that 30 years from now, Social Security will look remarkably similar to how it does today, with one big exception -- the age at which you can claim your full retirement benefits will be higher.
Our life expectancy today is much higher than when Social Security was established in 1935. Back then, life expectancy was 58 for men and 62 for women, so a full retirement age of 65 easily kept the system afloat. Fast-forward to today, and those life expectancies have jumped to 76.4 years for men and 81.2 years for women.
The huge jump is due chiefly to lower infant mortality rates, and I think the numbers stand a good chance of continuing to climb. Smoking rates have plunged, cars are getting safer, medical care is improving, and there's a trend toward healthier living. And longer lives will put even more pressure on the Social Security system.
Something has to give eventually, and given most Americans' distaste for higher taxes, the most likely fix will be a very gradual raising of the normal retirement age at which you can receive your full retirement benefits -- perhaps even to age 70.
Matt Frankel: If nothing changes, Social Security will still be around in 30 years, but it will only be able to pay about three-fourths of promised benefits. However, history says that something will be done to fix it, and there are two main ways this can happen -- benefit cuts or tax increases.
Brian's suggestion that full retirement ages may be pushed further is essentially a reduction in benefits, and any solutions having to do with benefit cuts are extremely unpopular on both sides of the political spectrum.
However, tax increases are surprisingly popular. According to one study by the National Academy of Social Insurance, 83% of Americans say it's important to preserve Social Security benefits, even if it means higher taxes. Eighty percent support gradually eliminating the cap on wages that are subject to Social Security taxes, and 83% are in favor of increasing the payroll tax from 6.2% to 7.2%. even 79% of Republicans would support these changes, despite some of the presidential candidates' positions.
Of course, any changes in Social Security will need to get through Congress, so an increase in the retirement age to 68 or a reduction in the cost-of-living adjustments (supported by 35% and 24% of Americans, respectively) are unlikely to gain any serious political traction, in my opinion. Therefore, in 30 years, I think Social Security will look the same as it does today -- but we'll be paying more taxes.
Dan Caplinger: Most people have the view that Social Security is under pressure and will struggle to maintain its current level of benefits in the decades to come. But some policymakers recently have pointed to a potentially expanded role for Social Security, and they've suggested that expanding benefits could actually achieve more of the positive outcomes that retirees need.
For instance, presidential candidate Bernie Sanders has advocated for a slate of improvements to Social Security. It would include an overall expansion of benefits by $65 per month, as well as increases to the cost-of-living adjustments that recipients currently receive. The proposal also focuses on low-income seniors by adjusting the way that minimum benefit levels are established, providing more money for those who've earned relatively low wages throughout their careers. Sanders would pay for this by raising the wage base cap on Social Security payroll taxes beyond the current $118,500 maximum.
Other proposals have suggested a range of potential boosts. One-time payments could make up for the lack of an inflation adjustment this year, helping seniors make ends meet. A rise in the payroll tax rate could shore up the trust funds that support Social Security payments. All in all, attention paid to enhancing Social Security could make it even stronger 30 years down the road.
Selena Maranjian: In 30 years, Social Security may be stronger or weaker -- or it may have morphed into something else. One possibility promoted by some politicians, among others, is to supplement or replace it with private investment accounts for each worker. Gone (or reduced) will be the government's responsibility to provide retirement income for workers and instead, the responsibility will lie more with the workers themselves.
Arguments in favor of private accounts include the fact that account owners will have more control over their future income streams as they'll be able to direct how money in the accounts will be invested. (For example, there might be an assortment of mutual funds to choose from.) Thus, they'll be able to build bigger income streams than the current Social Security program would have offered them.
That might sound good, but the downsides are meaningful. For one thing, many millions of Americans are not very financially savvy and may not make sound investment choices. They may choose low-risk funds, for example, and end up with slow-growing accounts that don't serve them very well come retirement.
The best chance for substantial growth is via the stock market, but that doesn't go up in a straight line. If the stock market swoons and stays depressed for a protracted period, many retirees and near-retirees could suffer significantly. In 2008, the S&P 500 dove some 37%, while it tanked by 22% in 2002. What are the chances that investors will panic and get out of stocks just when they're near a bottom, losing out on the ensuing recovery? Very high for many, as even relatively seasoned investors are quick to panic.
Many investors already have separate retirement accounts in their workplace-sponsored 401(k)s, but the median balance in those was recently less than $20,000 -- rather insufficient to support a retirement.
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